COMMISSIONER, INCOME TAX, THIRUVANANTHAPURAM v. K. RAVINDRANATHAN NAIR

Citation: [2007] 11 S.C.R. 1097

Court: Supreme Court of India

Bench: S.H. KAPADIA, B. SUDERSHAN REDDY

Case summary

COMMISSIONER, INCOME TAX, THIRUVANANTHAPURAM v. K. RAVINDRANATHAN NAIR.pdf

Judgment text

f COMMISSIONER, INCOME TAX, THIRUVANANTHAPURAM v. K. RAVINDRANATHAN NAIR NOVEMBER 13, 2007 [S. H. KAPADIA AND B. SUDERSHAN REDDY, JJ. ) Income Tax Act, 1961: s. 80HHC(3)(a), (b) and (c) and Clause (baa) to the Explanation to s. 80HHC-Assessment Year 1993-94-Processing charges-, Inclusion of, in the 'total turnover '-Held: Processing chargesforlfl part ofgross total income hence includible in total turnover in th~ formula under s. 80HHC. s. 80HHC(3)-Assessment Year 1993-94-Export ofboth self-: manufactured goods and trading goods-Deduction under s. 80HHC(3)(c)-Entitlementfor-Held: Losses suffered by assessee in export oftrading goods can be set ofjladjusted againstprofitsfrom export of manufactured goods and vice versa-If after such adjustments, there ispositive profits, assessee is entitledto deduction-- Ifthere is loss, he is not entitled to any deduction.

The questions for consideration in these appeals are whether processing charges earned by assessee were includible in the "total turnover" in the formula in s. 80HHC(3) oflncome Tax Act, 1961, for the assessment year 1993-94, for computing deduction under s. 80HHC and whether in the computation of deduction, under, s. 80HHC(3)(c) losses suffered by the taxpayer in the export of trading goods can be set off/adjusted against profits from export of manufactured goods and vice versa and whether the assessee would' be entitled to deduction ifafter such adjustments/set offthe net figure is a loss. Allowing the appeals filed by the Department except CA A No. 3167 of 2007 and remitting the matter to the A. O. for fresh disposal and dismissing CA No. 3167 of2007, the Court HELD: 1. The formula in s.

80HHC(3) ofthe Income Tax Act provided for a fraction ofexport turnover divided by total turnover to be applied to Business Profits calculated after deducting 90% of the sums mentioned in clause (baa) to the Explanation to s. 80HHC. The profit incentives and items like rent, commission, brokerage, charges etc. though formed part of gross total income bad to be excluded as they were "independent incomes" which had no element ofexport turnover. (Para 18) (1112-F-G] 1. 2. Under s. 80HHC(l) it is provided that in computing the "total income" a deduction of the profits derived by the assessee from the export ofgoods shall be made. The words "profits derived from exports" in the said sub-section was substituted for the words ''whole ofincome" by Direct Tax Laws (Amendment) Act, 1989 w. e. t: 1. 4. 89.

The expression "derived from" in the said sub-section is narrower than the expression "attributable to", therefore, it is only "profits derived from exports" which become the basis for working out the said formula in s. 80HHC(3) ofthe Act. [Para 17) (1111-E-G] 1. 3. Before giving Deduction, under s. 80HHC(3)(a), (b) or (c), the gross total income of the assessee being profits from business had to be arrived at in terms ofclause (baa) to the said Explanation. While cakulating "Business Profits" the same bad to be done in terms ofs. 28 to s. 44D of the I. T. Act alone. Other provisions like ss. 70 and 71 of the I. T. Act were excluded. Therefore, if the said processing charges were part ofgross total income ofthe taxpayer being profits from business then it had to be included in the total turnover in the above formula. The deduction has to be from profits G as understood in the commercial sense.

Moreover, under clause (baa)(l), 90% ofany amount reforred to in clause (iiia), (iiib) and (iiic) of s. 28 of the l. T. Act or any receipts by way of brokerage, commission, interest, rent, charges or any other receipt ofa similar nature included in such profits. The said expression "included in such t RAVINDRANATHANNAIR profits" indicated that the said processing charges formed part of the gross total income being business profits. (Para 17) (1111-H; 1112-A-D], 1. 4. The processing charges, which was part of gross total' income, was an independent income like rent, commission, brokerage ' .. ; etc. and, therefore, 90% ofthe said sum had to be reduced from the gross total income to arrive at the Business Profits and since the ' said processing charge was an important component of Business 1 Profits, it also had to be included in the total turnover in the said formula to arrive at business profits in terms ofclause (baa) to the . said Explanation. [Para 19) (1112-H; 1113-A] 2. 1.

During assessment year 1993-94, s. 80HHC(3) constituted ' a Code by itself. Subsequent amendments have imposed restrictions/ qualifications by which the said provision has ceased to be a code by itself. In the above formula there existed four variables, namely, business profits, export turnover, total turnover and 90% ofthe sums referred to in clause (baa) to the said Explanation. In the computation ofdeduction unders. 80HHC all four variables bad to betaken into account. [Para21) [1113-E-F) 2. 2. Ifall the above four variables are kept in mind, it becomes clear that every receipt is not income and every inco1J1e would not necessarily include element ofexport turnover. This aspect needs to be kept in mind while interpreting clause (baa) to the said Explanation.

The said clause stated that 90% of incentive profits or receipts by way ofbrokerage, commission, interest, rent, charges or any other receipt oflike nature included in Business Profits, had to be deducted from Business Profits computed in terms ofss. 28 to 44D ofthe l. T. Act. [Para 21] [1113-G-H; 1114-A] Commissioner of Income Tax, Coimbatore v. Mis. Lakshmi Machine Works, (2007) 6Scale168, relied on. 3. The nature ofevery receipt needs to be ascertained in order to find out whether the said receipt forms part of/or that it has an attribute ofan export turnover. When an indirect tax is collected by J t \ A the taxpayer on behalfof the Government the tax recovered is for the Government. It may be an income in the conceptual sense or even under the I. T. Act but while working out the formula under s. 80HHC(3) and while applying the four variables one has to ascertain whether the receipt has an attribute ofexport turnover.

B An indirect tax like excise duty does not have that element ofexport turnover as understood in the above formula. [Para23] [1114-G,H; 1115-A,B] Commissioner of Income Tax, Coimbatore v. Mis. Lakshmi Machine Works, (2007) 6Scale168, held inapplicable. 4. A plain reading of s. 80HHC makes it clear that in arriving at the profits earned from export ofboth self-manufactured goods and trading goods, the profits and losses in both the trades have to be taken into consideration. If after such adjustments there is a D positive profit, the assessee would be entitled to deduction under s. 80HHC(l). Inhere is a loss he will not be entitled to any deduction. [Para27] (1116-A,B] A. M Moosa v. Commissioner ofIncome Tax, (200) 294 ITR 1 · SC, relied on. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5173 of 2007. From the final Judgment and Order dated 13. 02. 2003 ofthe High p Court ofKerala at Ernakulam in ITA No. 105 of2000. WITH C. A. Nos.

5174-5176, 5178, 5179 & 5181 of2007, 3687 & 3167 of2006. Vikas Singh, ASG. ; Dr. R. G. Padia & T. L. V. Iyer, Tufail A. Khan, Arijit Prasad, Rudreshwar Singh, B. V. Balaram Das, G. Prakash, Subramonium Prasad, Jay Kishor, E. M. S. Anam, Mukul Gupta, Mithilesh Singh, Ramesh Babu M. R. , Sanjay Kunur and Ramesh N. Keshwani (for Keswani & Co. ) for the Appearing parties. The Judgment ofthe Court was delivered by KAPADIA, J. Processing Civil Appeal No. 5173 of 2007 arising out of S. L. P. (C) No. 24617 of2003, Civil Appeal No. 5174 of 2007 arising out of S. L. P. (C) No. 5647 of2004, Civil Appeal No. 5175 of 2007 arising out of S. L. P. (C) No. 6267 of2004, Civil Appeal No. 5181 of 2007 arising out of S. L. P. (C) No. 12325 of2004. Leave granted. 2. This is a batch ofcivil appeals filed by the Department. For the sake ofconvenience we state the facts occurring in Civil Appeal No. 5173 of 2007 arising out of S. L. P. (C) No. 24617 of 2003 - Commissioner, Income Tax, Thiruvananthapuram v.

K. Ravindranathan Nair. Assessee-respondent has a factory in which he processes cashew nuts which are grown in his fann. Thereafter he exports the cashew nuts as an exporter. For processing, the assessee has compIete infrastructure. He has plant and machinery in his factory. At the same time, the assessee processes cashew nuts which are supplied to him by the exporters on job-work basis. After processing, the assessee returns the processed cashew nuts to the exporters. He earns processing charges. Therefore, the assessee is an exporter and a job worker. 3. Computation ofExport Incentive under Section 80IffiC(3) ofthe Income Tax Act, 1961 ("LT. Act", for short), is the issue for determination in this batch ofcivil appeals. G. 4. The assessee made a claim for Export Incentive under Section 80HHC(3) in his returns filed for the assessment year 1993-94. The assessee did not include processing charges (receipts) in his total turnover. In his return, he indicated his business profits at Rs.

1,94,08,220. The figure of Rs. 1,94,08,220 included the processing charges (receipts) \ amounting to Rs. 1,54,68,811. However, the assessee did not include the processing charges amounting to Rs. 1,54,68,811 in his total turnover. He contended that although the processing charges (receipts) amounting to Rs. 1,54,68,811 constituted part of business profits as computed under Section 28 ofthe LT. Act, since Section 80HHC (3) was the formula to B work out export incentive, the said figure ofRs. 1,54,68,811 was not includible in the total turnover in the formula under the said Section 80HHC(3) of the LT. Act. According to assessee, Section 80HHC(3) provided for computation ofexport incentive/concession to be computed by allocating business profits in the ratio ofexport turnover+ by total turnover. This argument was not accepted by the Department. 5. The narrow dispute which arises for determination is: whether the Department was right in including processing charges, amounting to · Rs.

l,54,68,811, in the total turnover while arriving at export profits under Section 80HHC(3) ofthe Act, as it stood at the material time. . . . 6. According to A. O. , the gross total income ofthe assessee was Rs. 1,94,08,220 from which an amount ofRs. 1,74,13,200 (90%) was deducted in terms ofclause (baa) to the Explanation to Section 80HHC to arrive at the Business Profits (See: page 52 ofthe S. L. P. paper book). 7. _Shri T. L:V. Iyer, learned senior counsel appearing on behalfof respondent-assessce, submitted that Section 80HHC(3) ofthe LT. Act provided for export incentives. According to learned counsel, the object behind enactment ofthe said sub-section was to encourage exports. He, therefore, submitted tha~ the above formula should be read to exclude processing charges from the total turnover in the above formula even though such charges constituted part of the business profits required to be calculated in terms _ofthe provisions ofSection 28 to 44D ofthe LT. Act.

According to learned counsel, the word ''turnover" includes all receipts from sale ofgoods and not from sale ofservices. According to learned G counsel, the assessee had two independent businesses, in one case he processed and exported his own products and in the other he processed the raw material (cashew nuts) supplied by third parties which he processed for earning process charges. According to learned counsel, income from works contract by way of processing charges were not -H RAVINDRANATHANNAIR [KAPADIA,]. ] includible in the denominator, in the above fonnula, namely, total turnover. According to learned counsel, ifprocessing charges were to be included in total turnover then the export incentives would stand reduced and that would defeat the very object behind enactment ofSection 80HHC(3) of the LT. Act.

Further, according to learned counsel, Section 80HHC(3) had granted export incentives only in respect ofreceipts in foreign exchange f from sale of goods and from processing provided such processing was done to goods which the taxpayer exported. That, he was not the exporter ofgoods which were only processed for third parties and, therefore, such processing charges were not includible in the total turnover even though, such charges were includible in the "business profits" under clause (baa) to the said Explanation. In this connection, learned counsel contended that such processing charges had no nexus with the activity ofexports and, therefore, such charges were not includible in the total turnover. In this connection, reliance was placed on the judgment ofthis Court in the case of Commissioner of Income Tax, Coimbatore v. Mis. Lakshmi Machine Works, (2007) 6 Scale 168. 8. Mr. Vikas Singh, learned Addi.

Solicitor General appearing on behalfofthe Department, contended that in view ofExplanation (ha) read with Explanation (baa) to Section 80HHC ofthe LT. Act when the said processing charges were includible in the business profits the same were also simultaneously includible in total turnover in the abO'Ve formula. According to learned counsel, Section 80HHC provided for export profits; that, in order to compute the quantum ofeligible deduction under Section 80HHC ofthe LT. Act, the Department was right in including the processing charges in the Business Profits and if such charges constituted part ofBusiness Profits then such charges cannot be excluded from total turnover. That, Business Profits, under the above fonnula, was required to be calculated in accordance with clause (baa) to the said Explanation.

According to learned courisel, keeping in mind the provisions of Explanation (ha) and Explanation (baa) it is clear that what was includible in the Business Profits in the above formula had to be included also in the total turnover. Therefore, according to learned counsel, the Tribunal as well as High Court had erred in holding that processing charges were not includible in the total turnover. In this connection, learned counsel placed heavy reliance on the judgment ofthe Rajasthan High Court in the case of Commissioner of Income-Tax v. Sharda Gum and Chemicals, (2007) 288 ITR 116 (Raj). 9. For the sake of convenience we quote hereinbelow Section 80HHC as it stood at the material time which reads as follow:. "Deduction in respect ofprofits retainedfor export business 80HHC.

(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business ofexport out ofIndia ofany goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions ofthis·section, be allowed, in computing the total income ofthe assessee, a deduction ofthe profits derived by the assessee from the export ofsuch goods or merchandise : Provided that ifthe assessee, being a holder ofan Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (b) ofsub-section (4A), that in respect ofthe amount ofthe export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount ofdeduction in the case ofthe assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export oftrading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover ofthe assessee in respect ofsuch trading goods.

(IA) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect ofwhich the Export House orTrading House has issued a certificate under the proviso to subsection (1 ), there shall, in accordance with and subject to the provisions ofthis section, be allowed in computing the total income · ofthe assessee, a deduction ofthe profits derived by the assessee from the sale of goods or merchandise to the Export House or C. l. T. , THIRUVANANTHAPURAM v. K. 1105 Trading House in respect ofwhich the certificate has been issued by the Export House or Trading House.

(2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out oflndia are received in, or brought into, India by the assessee (other than the supporting manufacturer) in convertible foreign exchange ,within a period ofsix months from the end of previous year or, where the Chief Commissioner or Commissioner is satisfied (for reasons to be recorded in writing) that the assessee is, for reasons beyond his control, unable to do so within the said period ofsix months, within such further period as the Chief Commissioner or Commissioner may allow in this behalf. (b) This section does not apply to the following goods or merchandise, nan1ely:-- (i) mineral oil; and (ii) minerals and ores (other tha. '1 processed minerals and ores specified in the Twelfth Schedule). Explanation 1.

-The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale process are credited to a separate account maintainoo for the purpose by the assessee with any bank outside India with the approval ofthe Reserve Bank ofIndia. Explanation 2. -For the removal ofdoubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill or export as I-ferred to in sub-section (1) ofsection 50 ofthe Customs Act, 1962 (52 of 1962), shall, for the purposes of this section, be deemed to be the sale proceeds thereof.

(3) For the purposes of sub-section (1),-- (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect ofsuch goods bears to the total turnover ofthe business carried on by the assessee; (b) where the export out ofIndia is oftrading goods, the profits derived from such export shall be the export turnover in respect ofsuch trading goods as reduced by the direct costs and indirect costs attributable to such export ; I where the export out of India is of goods or merchandise manufactured or processed by the assessee and oftrading goods, the profits, derived from such export shall,-- (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits ofthe business, the same proportion as the adjusted export turnover in respect ofsuch goods bears to the adjusted total turnover ofthe business carried on by the assessee; and (ii) in respect oftrading goods, be the export turnover in respect ofsuch trading goods as reduced by the direct and indirect costs attributable to export ofsuch trading goods : Providedthat the profits computed under clause (a) or clause (b) or clause (c) ofthis sub-section shall be further increased by the amount which bears to ninety per cent ofany sum referred to in clause (iiia) (not being profits on sale ofa licence acquired from any other person), and clause (iiib) and (iiic) ofsection 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.

· Explanations. - For the purposes ofthis sub-section,-- ___,_ / (a) 'adjusted export turnover' means the export tumove~ as reduced by the export turnover in respect oftrading goods; (b) 'adjusted profits of the business' means the profits ofthe business as reduced by the profits derived from the business of export out ofIndia oftrading goods as computed in the manner provided in clause (b) ofsub-section (3); I 'adjusted total turnover' means the total turnover ofthe busin~ss as reduced by the export turnover in respect oftrading goods; (d) 'direct costs' means costs directly attributable to the trading goods exported out ofIndia including the purchase price ofsuch goods; (e) 'indirect costs' means costs, not being direct costs, allocated in the ratio ofthe export turnover in respect of trading goods to the total turnover; (f) 'trading goods' means goods which are not manufactured or processed by the assessee.

(3A) For the purposes of sub-section (IA), profits derived by supporting manufacturer from the sale ofgoods or merchandise shall be,-- (a) in a case where the business carried on by the supporting manufacturer consists exclusively ofsale ofgoods or merchandise to one or more Export Houses or Trading Houses, the profits of ;:... the business [***]; (b) in a case where the- business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the profits of the business[***] the, same proportion as the turnover in respect ofsale to the respective Export House or Trading House bears to the total turnover ofthe business carried on by the assessee.

(4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed fonn, along with the return ofincome, the report of an accountant, as defined in the Explanation below sub-section (2) ofsection 288, certifying that the deduction has been correctly claimed in accordance with the provisions ofthis section. (4A) The deduction under sub-section (lA) shall not be admissible unless the supporting manufacturer furnishes in the prescribed fonn along with his return .

ofinconie,-- (a) the report of an accountant, as defined ~il the Explanation below sub-section (2) ofsection 288, certifying that the deduction has been correctly claimed _on the basis of the profits or the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House; and (b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section : Providedthat the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts ofthe Export House or Trading House under the provisions ofthis Act or under any · otherlaw. · Explanation.

-For the purposes ofthis section,-- (a) 'convertible foreign exchange' means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46of1973), and any rules made thereunder; (aa) 'export out oflndia' shall not include any transaction byway of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of1962); (b) 'export turnover' means the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) ofsub-section (2) ofany goods or merchandise to which this section applies and which are exported out ofIndia, but does not include freight or insurance attributable to the transport ofthe goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52of1962); (ba) 'total turnover' shall not include freight or insurance attributable to the transport ofthe goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 o~ 1962): Provided that in relation to any assessment year commencing on or after the 1st day ofApril, 1991, the expression total turnovet shall have effect as ifit also excluded any sum referred to in clauses (iiia), (iiib) and (iiic) ofsection 28; (baa) 'profits ofthe busint>ss' means the profits ofthe business as computed under the head Profits and gains ofbusiness or profession as reduced by- (1) ninety per cent ofany sum referred to in clauses (iiia), (iiib) and (iiic) ofsection 28 or ofany receipts by way of brokerage, commission, interest, rent, charges or any other receipt ofa similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment ofthe assessee situate outside India; [***] [***] I 'Export House Certificate' or 'Trading House Certificate' means a valid Export House Certificate or Trading House Certificate, as the case may be, issued by the Chief Controller ofImports and Exports Government ofIndia; (d) 'supporting manufacturer' means a person being an Indian _\~ ' " ' ~ company or a person (other than a company) resident in India, manufacturing (including processing) goods or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes ofexport.

" ' ' 10. Section 80HHC has been the subject-matter of frequent amendments. The said section was inserted in 1983. It was substituted in -t- 1985. Thereafter, it was amended in 1986, 1988, 1989, 1990, 1991, ' ~ 1992, 1994, 1999, 2000, 2003 and 2005. Therefore, while considering the applicability ofSection 80 HHC, it is very important to keep in mind the working ofthe said section as applicable in a given assessment year. 11. In this civil appeal we are concerned with the assessment year 1993-94. 12. At this stage, we may mention that, according to High Court, in order to include any amount in the; total turnover the said amount must ..... either be the purchase price or the sale price or an item incidental to the transfer ofthe goods dealt with by the assessee.

According to High Court, the assessee had processed raw cashew nuts belonging to third parties in his factory for which he received the said charges; that, the purpose behind the said formula was to find out the profits attributable to export turnover i. e. profit on export sales. Further, according to High Court, in the above formula business income was to be computed in order to determine the quantum ofeligible deduction. That, in the said formula, business income in the context oftotal turnover was income generated on purchase and sales. That, in the context of Section 80HHC the total turnover referred to sales and purchase turnover and it did not include receipts in the nature ofincome which income was not attributable to sales. Further, according to High Court, even under the Circulars (Circular No. 621 dated 19. 12. 91) issued by CBDT a clarification was issued to the effect th(!

t to arrive at the quantum ofeligible deduction under Section 80HHC, in the case ofan assessee having export and domestic business, a fraction of ,. export turnover to total turnover had to be applied to Business Profits computed under Section 28 ofthe LT. Act. According to High Court, such processing charges with which we are concerned had no connection with the word "sale", therefore, they were not liable to be included in the >L _: r :· ! t~V. :n,~THIRlfVA'. N1\Nf. i-iX:P0RA'. M:'\>~K. J. 1'. '. \lfl\I totaltuniover:iJ.. rminl:I JJL? 1rii l'I i! 4>rl\ ·. 1dJ;b i•> cm:'1J ni JG bvi-rr£ :KI ,l. A_ ">d•;r ' .... :". J'. i,_ud or;r•t>hr,l~-:, :J'. r! N ,vbnu-:n . b":iJOH :id ,1f;-:L i:;in 1nic1 ~nc 1 . ;·b :1Hj ~~ir;9. ~~~~e9_b~,~e)~Q~ffiJ~? ~~n~ ~~ ~. w. aJ1~~ 0 1 1 0 0 ~~~g7si~~~~ ~,in8. ~4i,b ~m~':. t mliMTI8Y2~~·-~ R~B~~eLP~i~ 1P. ~ 1 ~? tJW~S~~ ? ;~1~~~,Rb~iY~ ~Pma! J:iu 1uo oi . :·1,jdr. -irt r . tr. :fJu~:;x,, 'JLJN 1 1 u·:r1:14. ThiStbatch of!

dVii api5eaIStpe,Jrtainstfo:asses·sme'ilt yelf 19931 28 94;lthetefore, we have-quoted tfie'said-sectioii ar~frstoo'd:dn ilie•ihliteii~l date:i. i t. ,001~.. JbmJ 2J: d! ru1c; :r;r.. ,. §:li '·:E 1 1 1 1 1 i:J~ Ji! t: c>rlli~·~;Hfi71 1 aeriVed by t~1llis~ssee"froih '~lie export'm1g'8dd~ sh'aWBeμt~ae~'Th. di~ ~at! l:e\vords "piofitidenvetrfi. onfexP. Qrts;,;lri'ille ~~Ci ·su6. ~§~ciitfri>W¥J 1 1 substitilt&f¥or' tlte·woras ~'wnofo· Bffin'. 2omJm b'y DiNcitt 1fffue''sa1d rro~ul¥ ilfSectioii180Hifc(,3)··titcth'6 0X6t_. 1 1 Siinilady;'oy Fitia~ce-P:crt, f991j w. e~f. ''f}4.? 2;'. fo! -'th~ttir5t:nrhe,,'TI\~ . 6 1 dpt~ssiOn~''i:>rbfits'ofthe :6usiness''. stobdia~t{ried'fo\lliefuFtWe'_t'fii-b]zis 1 of the business" as cohlput~a(under1he;l\eiltl ~'prbfit~' aHkf galhs ~&r b. ~! ~e. ~~"1 . w,t~%-~Fp~i? JJ~. 2;8_.! f? ;i1P 9f\th~ ! -W. l~ct,/Tuef:~{ lltJ1Vft-JnAv1/5! G'v-r:l'/A}l >i ').! l f C~Wr. :,\THIRlJVA'.

NANtHAPURAM-v>K/ ,1115 of/or that it has an attribute ofan export tumoverJ iWhen an indirect:tax·i~ 'A ~oll_e9ted by_th~taxpayer,on_behalfqfthe,government the 1¥ re~overed 1 1 11 1 1 1 i~rr~r tli~ go~~nlliierii. 'Yi i¥fay iJ~ ~1ri~~m~"ili tii~ goiib~rtilllsense or ~Lr~()! t i' 1~'-JI •_. ~··rp.. 1J".. •~ {Ji' · ! '; r1U(J ":·. j_jr . ver. An ~B 9 1 1 1 n{dii~ct ~)iil(~~~bi~ ~J... i'.. ,11'. J ·1;~i>'ffW1 , L . 1 -,y_,n ,,,, I. rJr Civil Appeal No. 5179 of2007 arising out ofS. L. P. (C) No. 13748 '. Jbul:m r oolt. ~ )J-'? ,J H! lu& fI(J'. J:I.. 1?. Il'nit~5. '. Le~v~. granJed.. ,,v:. irnr. it? ·,, Ar- ~i·. ,,'-11L, :. "... ;.. -,1-'.? f:. ,, 1 1 nnq/26: A sHolfqd~~hdH:wllich~an~e~·taP&eiffrhhlati8H·in ffiis bai~h·of ~JF 11 civil appeals filed by the Department is: ·' i<n; . m,iWHeill~Fiiiill~·tn. ~iietoi&JHlpiitHtio~:ofaeaucti&ri;Un. <l~r Section '1 .. ,,,rr89W! q9)(o) 9. fjt! ie i:;L~Act,:l~sg~~~uff. ~r~dbyJμt'. ~payer in b1;J;Jbe ~XPPU::Pf:tr~di. ng good~! ~aI! ~,s~t q. ff/~djl!

~ted ag~in~~ profits 1 LT ·1rifr:Qm;e)(poi:t. ofaP. cm~f<! c! ur~g,gQQ. ~'!? dyi~. ~yersa ~d whether ! G the assessee would be entitled to deduction if·af~r such . adjustments/set offthe _net figure_is a loss. " fi(,ff::;,5,~ "fLJ1. ATU jj(JrJ'J! J;,·L fq rJ[;LllJlJ'lWU' lei ,·_. r.. WI 'A;' ; ' ~riJ:. : :· ,'! . ni 1::. i~hlmarec~iltijudgmentof)his1Coln;t_inithe ,C(. ase of~4-:M. <1Moosa VJ~Con;zmissi<;mrmof/1JcOme::ta~,1 [2007] . 29;4JT'R·:l ·SC; ~is. Court vide f+H para 11 has ruled as follows: ''A plain reading ofsection 80HHC makes it clear that in arriving at the profits earned from export ofboth self-manufactured goods and trading goods, the profits and losses in both the trades have to be taken into consideration. Ifafter such adjustments there is a positive profit, the assessee would be entitled to deduction under lsection 80HHC(l). Ifthere is a loss he will not be entitled to any deduction. " 28.

Accordingly, civil appeals filed by the Department stand allowed, the impugned judgments ofthe High Court are set aside and the matters are remitted to A. O. for fresh disposal ofthe cases in accordance with the judgment ofthis Court in A. A!. Moosa (supra). No order as to costs. Processing and Negative Profits (loss) -- Civil Appeal No. of2007 arising out ofS. L. P. (C) No. 12609 of2004. 29. Leave granted. 30. Assessee is a company engaged in cashew business. 31. For the assessment year 1993-94 assessee did not include processing charges in its total turnover for computing deduction under Section 80HHC ofthe LT. Act. 32. Assessee adjusted its losses from export oftrading goods against profits from export of manufacturing goods for determining its export profits. 33.

Therefore, two following questions arise for determination: "Whether processing charges were includible in the ''total turnover'' in the formula in Section 80HHC(3), as it stood at the material time, for computing deduction under Section 80HHC ofthe LT. Act. " "Whether in the matter ofcomputation ofdeduction, under Section 80HHC(3)(c) . ofthe LT. Act, losses suffered by the taxpayer in the export oftrading goods can be set off/adjusted against profits C. l. T. , THIRUVANANTHAPURAM v. K. 1117 from export of manufactured goods and vice versa and whether the assessee would be entitled to deduction if after such adjustments/set offthe net figure is a loss. " 34. For the reasons given hereinabove, we answer both the above questions in favour ofthe Department and against assessee. Accordingly civil appeal filed by the Department is allowed, the impugned judgment ofthe High Court is set aside and the matter is remitted to A. O.

for fresh disposal ofthe case in accordance with law declared hereinabove on both the points. No order as to costs. Civil Appeal No. 3167 of2006 35. In view of the Judgment in Commissioner ofIncome Tax, Coimbatore v. Mis. Lakshmi Machine Works, (2007) 6 Scale 168, Civil Appeal No. 3167 of2006 filed by the Department is accordingly dismissed with no order as to costs. O D. G. Appeals disposed of.